US Senate wants to repeal tax exclusion

DEATH AND TAXES A bill proposed by the US Senate Finance Committee would remove the Section 911 exclusion, forcing Americans abroad to pay taxes twice

AFP , WASHINGTON

A plan to boost taxes on US citizens living abroad while slashing other taxes is drawing an angry response from businesses as well as organizations representing US expatriates.

The bill drafted by the Senate Finance Committee, which seeks to cut some US$350 billion overall over a 10-year period, would recoup some of that by eliminating a longstanding tax exemption for Americans living overseas.

The Senate bill still must be reconciled with legislation passed by the House of Representatives.

To offset some of the tax cuts, the Senate plan includes proposals to raise revenues by eliminating tax breaks to some US firms that move offshore, and -- in a more controversial move -- ending the US$80,000 annual income exclusion for US citizens abroad, known as the Section 911 exclusion.

Without that exclusion, most Americans abroad would be taxed twice, because the US, unlike most other countries, taxes its citizens living anywhere in the world.

David Hamod, a Washington consultant and executive director of the Section 911 Coalition, which represents US firms, chambers of commerce and schools operating overseas, said the Senate panel made a huge mistake.

"The committee was looking for a quick fix, but I don't think they fully understood the magnitude of what they were doing," Hamod said, arguing that the exemption for US workers abroad got muddled in with the question of offshore tax shelters.

"There was some confusion about offshore companies and overseas Americans, but the two are almost diametrically opposed. ... Sending Americans abroad creates jobs and promotes American exports."

But Senator Charles Grassley, who crafted the bill, said it was no mistake.

"Part of tax relief is tax fairness," he said. "I have to ask whether it's fair for taxpayers to underwrite the cost of sending employees overseas ... an American soldier who spends a year in Kabul has to pay his full US tax obligation, but an American working for a private company in Bermuda pays no taxes."

Opponents contend that companies and employees would face double taxation under the proposal.

"The tax exclusion for overseas income should be expanded, not scrapped," said Thomas Donohue, president of the US Chamber of Commerce.

"These workers play a vital role in promoting our national interests, and their presence helps support US exports and creates US-based jobs."

Official estimates put the number of US private citizens abroad at around four million, but Hamod said the figure is closer to 10 million, because the official number includes only those who have registered with US embassies.

Congressional experts say that ending the tax exclusion would bring in some US$35 billion over 10 years.

US business groups with overseas links and others have started an intense lobbying campaign to maintain the exclusion, arguing that the Senate bill would make it much harder and more costly to send Americans to overseas posts.

"The United States is one of the few nations to tax its citizens when they live and work in other nations -- the misguided practice of `worldwide' taxation," said Daniel Mitchell, a researcher at the conservative Heritage Foundation.

Eliminating the exclusion, said Mitchell, "hurts US companies trying to compete in global markets and reduces American exports. It also is a form of double taxation, since US citizens employed in other nations are subject to all applicable taxes in those nations."